Dec 18, 2023
KEY TAKEAWAYS:
A SAC has separate accounts and can use these to keep its assets and liabilities isolated from one another. This means that the money and debts connected to one account are completely independent from the SAC's other accounts and from its overall funds and liabilities.
SACs have created opportunities for the introduction of innovative legal structures across manifold business areas and we encounter SACs routinely in connection with a wide range of uses, including insurance and reinsurance-related vehicles, multi-class investment funds, digital asset businesses and multi-asset holding companies.
This brief note gives an overview of some unique features of a SAC and some key practical considerations to consider when dealing with a SAC.
Compared to a standard Bermuda company, a SAC has several unique features:
Pursuant to the SAC Act, segregated accounts are not separate legal entities. Rather, segregated accounts simply enable the statutory segregation of the SAC's assets and liabilities, whilst still being under one legal entity – i.e., the SAC.
The SAC Act provides the certainty that any asset linked to a particular segregated account will not be available or used to meet liabilities linked to any other segregated accounts or to the general SAC account. Accordingly, creditors of a particular segregated account will have no rights or claims over any other segregated account.
A SAC may create and issue securities in one or more classes linked to a particular segregated account, the proceeds of which are included in the assets linked to such segregated account. Such securities may carry the right to receive distributions from that segregated account.
The SAC Act implies a provision into every contract where the parties agree that the liability will not be paid out of assets other than assets of the segregated account to which the transaction is linked and that any recoveries in breach of this provision are held in trust by the recipient.
In addition, the SAC Act enables a SAC to make appropriate adjustments between segregated accounts in case: (a) a creditor, in breach of the SAC Act, enforces its claims against assets not linked to the account with whom the creditor has dealings; or (b) the SAC is unable to recover the sum.
The SAC Act requires a SAC to appoint a segregated account representative in Bermuda (typically a regulated person or a person approved by the Minister of Finance in Bermuda). Details of the segregated account representative will be included in the SAC's register of directors and officers (or, if applicable, its register of managers).
When transacting with a SAC, there are several specific considerations that should be considered including:
a) At the outset of any transaction, the relevant segregated account(s)' identity should be confirmed.
b) Once confirmed, it will be necessary to obtain additional corporate records providing evidence of the valid establishment of the segregated account(s) (this is typically in the form of the corporate approvals authorising the establishment of the relevant segregated account(s)).
c) Any transaction documents will need to contain a proper description of the SAC, including the relevant segregated account(s). Typically, limited recourse provisions will also be included pursuant to which the relevant counterparties agree that they will only have recourse to the assets linked to the relevant segregated account(s).
d) Similarly, the corporate authorisations of the SAC should refer specifically to it acting for, and on behalf of, the relevant segregated account(s).
As noted above, the SAC Act includes provisions to ensure that creditors in respect of a particular segregated account will not be able to enforce their claims against assets not linked to that segregated account. Helpfully, the SAC Act has been considered by the Bermuda courts and its principal statutory provisions have been confirmed, including as recently as July 2023 in the matter of Omnia Ltd [2023] SC (Bda) 58 Civ. 28 July 2023.
Partner, Walkers (CI) LP/Jersey
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